On the Non-Exclusivity of Loan Contracts: An Empirical Investigation

Résumé

Theory shows that the non-exclusivity of financial contracts generates important negative contractual externalities. Employing a unique dataset, we identify how these externalities affect credit availability. Using internal information on a creditor’s willingness to lend, we find that a creditor reduces its willingness to lend to a borrower when the borrower obtains a loan at another creditor (“outside loan”). Consistent with the theoretical literature, the effect is more pronounced the larger the outside loans and it is muted if the initial lender’s existing and future loans retain seniority over outside loans and are secured with valuable collateral.